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Before: SHRI N.K. SAINI & SMT. BEENA PILLAI
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER:
The present appeal is filed by the assessee against the order of the ld. CIT(A)-XVII, New Delhi, vide order dated 24/02/2011 on the following grounds:
1. “That the impugned order dt. 24.2.11 passed by theld. CIT(A)XVII, New Delhi is bad in law and wrong on facts.
2. That on the facts and circumstances of the case, the ld. CIT(A) has erred in law in upholding the action of the Assessing Officer treating the amount payable to the consolidator amounting to Rs. 95,44,264/- as non genuine expenditure.
2.1 That on the facts and circumstances of the case, the ld. CIT(A) has erred in law in upholding the action of the Assessing Officer in making disallowance u/s 40(a)(ia) of the I.T. Act, 1961 amounting to Rs. 95,44,264/- paid by the assessee to the consolidator for transfer of rights. 2.2 That on the facts and circumstances of the case, the ld. CIT(A) has erred in holding that the consolidator was working as an agent of the assessee and hence the assessee ought to have deducted TDS on amount paid to the consolidator u/s 194C or 194H of the I.T. Act, 1961 3. That on the facts and circumstances of the case, the ld. CIT(A) has erred in law in not appreciating that the disallowance of said sum of Rs. 95,44,264/- which is included in purchases during the year has no impact on appellant’s profit liable to tax as the entire purchases form part of closing stock of the appellant at the year end. 3.1 That the order of ld. CIT(A) is erroneous and self contradictory. The ld. CIT(A) has erred in confirming the addition after holding that closing stock also needs to be reduced. The ld. CIT(A) ought to have held that the transaction of Rs. 95,44,264/- does not result into any taxable income as same is neither includible in purchases or closing stock.
4. That the appellant craves leave to add, alter, amend, substitute, withdraw and/or vary any grounds of appeal at or before the time of hearing.”
Brief facts of the case are that: The assessee filed its return of income on 22/02/08 declaring a total loss of Rs. 14,449/-. The case was selected for scrutiny. Accordingly, notices u/s 143(2) were issued. The assessee company is in the business acquiring and developing land. During the assessment proceedings the ld. Assessing Officer observed that the assessee has booked land for an amount of Rs. 95,44,264/- which was paid to the purchaser on which the stamp duty has been paid. The details of the purchase are as below: S.No. Name of the party Amount paid Stamp Duty Amount Total cost to land owners paid payable to booked in the consolidator P&L A/c 1. Shri Madan 146711250 8802690 9544264 165058204 Lal/Shri Kanwar Pal S/o Sh. Mam Raj & Othrs. Total 146711250 8802690 9544264 165058204
The ld. Assessing Officer observed that the assessee has claimed the amount for consolidation of the land. The assessee had also submitted that the role of the consolidator was to identify the land, approach the land owners, negotiate with them and carry out due diligence of land regarding ownership, title etc. It was submitted that the consolidator settles the price with the land owners. The ld. Assessing Officer disregarded the arguments of the assessee as no evidence were produced to show that any such services were rendered by the said consolidator. The ld. Assessing Officer, therefore, made addition to an extent of Rs. 95,44,264/-.
Aggrieved by the order of the ld. Assessing Officer the assessee preferred an appeal before the ld. CIT(A). The ld. CIT(A) has dealt with the issue at para 2.3 of his order which is reproduced herein below:
“2.3 I have carefully considered the asstt. order and the submission made by the ld. AR on the above issue. As per the facts of this case, the assessee company was incorporated on 30.11.2006 and as such this is effectively the first year of its operation.
During the year under consideration, the assessee has purchased land measuring 6.037 acres in district Gurgaon. It is observed by the Assessing Officer in the asstt. order that the assessee has shown the purchase price of the above land at Rs. 16,50,58,204/- which is debited to its P&L A/c. as against this, the cost of the above land paid to the land owners as per sale deeds is Rs. 14,67,11,250/- and the stamp duty is Rs. 88,02,690/-. The total of the above two amounts comes to Rs. 15,55,13,940/-. On being questioned by the Assessing Officer regarding the difference amount of Rs. 95,44,264/- (Rs. 16,50,58,204/- minus Rs. 15,55,13,940/-), it was contended by the assessee that the said land has been purchased through the land consolidator M/s Vikram Electric Equipment P. Ltd. and the excess amount was paid to M/s Vikram Electric Co. Ltd. being consolidator towards transfer of its rights in the land. It was argued that the same was done as per the Memorandum of Understanding between the assessee and M/s Vikram Electric Co. P. Ltd. for purchase of 27 acres of land for which M/s Vikram Electric Co. P. Ltd. was to act as consolidator for identifying the land, approaching the land owners and negotiating with them and carrying out due diligence etc. It was argued that the land measuring 6.037 acres purchased during this year forms part of the total 27 acres of land which will be purchased by the assessee through M/s Vikram Electric Co. P. Ltd. as per the MoU. It was observed by the Assessing Officer that the above amount was not appearing separately in the P&L A/c as expenditure but was clubbed with the purchase price of land and that the sale deed with the land owners did not indicate that the consolidator was involved in arranging the purchase of land. The Assessing Officer has also observed that M/s Vikram Electric Co. P. Ltd. has not shown income of the above amount in its Profit & Loss A/c. The Assessing Officer has, accordingly, held this payment to be non genuine expenditure. Without prejudice to the above argument, it is observed by the Assessing Officer that the consolidation charges received by M/s Vikram Electric Co. P. Ltd. is in the nature of brokerage or service charges subject to TDS u/s 194H of the Act. Alternatively, since the payment was made under the MoU, it is in the nature of payment to contractor which is subject to TDS u/s 194C of the Act. Since no TDS has been deducted in respect of the above payment, the Assessing Officer has held that the above sum is disallowable u/s 40(a)(ia) of the Act. The Assessing Officer has, accordingly, added the above amount of Rs. 95,44,264/- to the appellant’s income for the year.”
Aggrieved by the order of the ld. CIT(A) the assessee is in appeal before us now.
We have heard the rival submissions of the ld. AR and the DR and have perused the paper book filed before us. 7. The ld. AR submits that on identical set of facts, the issue has been decided in favour of the assessee and against the revenue by the ‘D’ Bench of the ITAT in and ITA No. 1953/D/2011 for the AY 2007-08 in the case of M/s Finian Estate Developers P. Ltd. order dated 5th October, 2011. We further submit that the ‘H’ Bench of the Tribunal in the case of Zebina Real Estate P. Ltd. vs. ITO in ITA No. 1429/D/2011 and 1430/D/2011 order dated 12.4.2013 followed the judgment of Tribunal in the case of Finian Estates Developers P. Ltd. 142 TTJ 545 (Del) and allowed the appeal of the assessee.
7.1. The ld. AR further submitted that against the order of Finail Estate Developers (supra) the Revenue has not preferred any appeal before the Hon’ble High Court. 7.2. The ld. AR has also placed reliance on the decision of this Tribunal in the case of Penthea Builders & Developers P. Ltd. in for AY 2007-08 on identical set off facts. The ld. AR submits that the Revenue had preferred an appeal in the case of Panthea Builders and Developers (supra) in ITA No. 270/2005 before the Hon’ble Jurisdictional High Court. The Hon’ble High Court at para 11 has observed the following facts: “11. In its order dt. 5th October, 2011, the ITAT examined the nature of the MoU between Finian and VEEPL with particular reference to the clauses therein and concluded that Finian was transacting with VEEPL “on a principal to principal basis” and that it could not be said that the payment to VEEPL was for rendering services. Consequently, it was held that section 194H of the Act was “not at all applicable”. The ITAT noted that in terms of clause 3.2 of the MoU no sum was due to be paid to VEEPL for the services rendered by it till it procured 27 acres of land. The amount paid to VEEPL was duly reflected by Finian in its purchases and the closing stock and no sales had been made during the year in question. The payment of 2% of the sale amount of VEEPL as consideration for transferring VEEPL’s rights in the land was in terms of Clause 3.2 of the MoU and it had not been shown that such payment was not a fair compensation.
As already noticed hereinbefore, no appeal was filed by the Revenue in this Court against the decision of the ITAT on the above aspect in the case of Finian. 13. ……..It is submitted that while in the case of Finian the Consolidator invested its own funds for purchasing the land for the ‘acquirer’ in the present case of ZREPL the acquirer paid from its own funds. However, ld. Counsel for the Revenue has been unable to show any difference in the actual clauses of the MoU between ZREPL and VEEPL when compared to the MoU between Finian and VEEPL. In the circumstances, the Court is unable to appreciate on what basis it could be said that the arrangement between ZREPL and VEEPL was not on a ‘principal to principal’ basis. With the Revenue having accepted the decision of the ITAT in the case of ITO vs. Finian Estates Developers P. Ltd., and with there being nothing to distinguish it in relation to the case of ZREPL, the Court is not inclined to interfere with the impugned order of the ITAT which, in the opinion of the Court, has rightly relied upon its earlier decision in the case of Finian.
Having considered at length the submissions of ld. Counsel for the Revenue, the pleadings and the documents not only in the case of PBDPL but also in the case of Finian, the Court is unable to find any distinction between the two cases as far as the clauses in the MoU between the parties and VEEPL or the payment made to the later pursuant thereto. Again, with the Revenue having accepted the decision of the ITAT in the case of Finian, and with the Revenue being unable to bring out any distinguishing feature as far as the case of PBDPL, the Court sees no reason why it should interfere with the impugned order of the ITAT.” 7.3. The ld.AR submitted that in the facts of the present case before us, the assessee has the payment to Vikram Electric Equipment P. Ltd., on account of transfer of certain rights of Vikram Electric Equipment P. Ltd. in the lands transferred to the assessee, and was not towards any services rendered. The ld.AR submitted that as a consolidator, Vikram Electric Equipment P. Ltd. was to contact the local farmers in and around Gurgaon, who were willing to sell their land. 7.4. He submitted that Vikram Electric Equipment P. Ltd. was making payments from its account to the farmers and thereto have certain rights in the land. On the ultimate transfer of land to the assessee through Vikram Electric Equipment P. Ltd., the final payment was to be made to the farmers. Towards the right of Vikram Electric Equipment P. Ltd. 2% of the cost of land (in some cases, even a higher amount) was to be paid to Vikram Electric Equipment P. Ltd. as mutually agreed. This was the mutually agreed price. 7.5. The ld.AR submitted that Vikram Electric Equipment P. Ltd. worked for land acquisition and after scrutiny of the concerned documents of the land, Vikram Electric Equipment P. ltd. would suggest the appropriate land for purchase by the assessee. He submitted that Vikram Electric Equipment P. ltd. thus acted with the farmers on its own account rather than for and on behalf of the assessee, on principle to principle basis, with the farmers on the one hand and the assessee on the other. 7.6. The ld.AR further submitted that this being so, the provisions of neither section 194C nor section 194H get attracted to the payment made by the assessee to Vikram Electric Equipment P. Ltd. It has been submitted by the ld.AR that the payment along with payment made to the farmers directly represented the purchase of the cost of land and had been correctly treated as such in the assessee’s books of account. It has been contended that alternatively, in any case, the payment made to Vikram Electric Equipment P. Ltd. has not affected the taxable profits of the assessee during the year. The total purchases were lying as closing stock, as observed by the Taxing authorities also and the effect of adjustment with regard to the amount paid to Vikram Electric Equipment P. Ltd. would arise only on and in the instances of sale of land by the assessee. It is thus submitted that no disallowance u/s 40(a)(ia) of the Act is called for much less any consequential action u/s 201 of the Act. It has been contended that Vikram Electric Equipment P. Ltd. had an important role to play as a consolidator, since the assessee required contiguous land holdings in order to develop a colony. The d.Ar submitted that in case land which was agreed to be acquired by Vikram Electric Equipment P. Ltd. was not found to be suitable by the assessee, it was Vikram Electric Equipment P. Ltd. which would have to bear the consequences, indicating that Vikram Electric Equipment P. Ltd. was not acting as an agent on behalf of the assessee, but was working on a principle to principle basis, independently.
On the other hand, the stand of the Ld.DR, has been that MOU signed by the assessee and Vikram Electric Equipment P. Ltd. lays down that Vikram Electric Equipment P. ld. Makes it clear that Vikram Electric Equipment P. Ltd. was acting as an agent of the assessee, rendering services, for which, the provisions of section 194H of the Act are applicable and it is correctly applied by the ld. CIT(A).
We have perused the agreement in this regard. It is seen that clause 3.2 of the MOU between the assessee and Vikram Electric Equipment P. Ltd. makes it clear that Vikram Electric Equipment P. Ltd. or its agent agreed to assign their rights to purchase the land in favour of the assessee. It would be appropriate to reproduce here, the said clause 3.2: 3.2 In consideration of the consolidator or its agent/nominee assigning its right to purchase the land in favour of the Buyer Company and causing the land owners to execute the sale deeds directly in fvour of the Buyer Company, the Buyer Company shall pay the consolidator such sum as may be mutually agreed. However, it is specifically agreed by the consolidator that no sum shall accrue to it on this account till it procures 27 acres of land for the Buyer company (unless the Buyer Company decides to procure less than 27 acres through the consolidator) and all the issues relating to possession and mutation of such land are settled to the satisfaction of the Buyer Company. 9.1. The above clause also makes it evident that unless the assessee decided to procure less than 27 acres of land through Vikram Electric Equipment P. Ltd. Vikram Electric Equipment P. Ltd. was to procure 27 acres of land for the assessee, failing which, no payment was to be made by the assessee to Vikram Electric Equipment P. Ltd. 9.2. This clearly shows that Vikram Electric Equipment P. Ltd. was transacting on a principle to principle basis and it cannot be said that the payment was made by the assessee to Vikram Electric Equipment P. Ltd. for rendering of any service. The provisions of sec. 194H of the Act are, therefore, not at all applicable. 9.3. Moreover, the amount paid to Vikram Electric Equipment P. Ltd. was duly reflected by the assessee in the purchases closing stock. No sales had been made during the year under consideration. It has not been shown to be otherwise. In such a scenario, in our considered opinion, no disallowance is called for. 9.4. Pertinently, no addition having been made for the year by the Assessing Officer, the alternate contention of the assessee to the effect that no addition can be made during the year, stands accepted by both the Authorities below. 9.5. The provisions of section 40(a)(ia) of the Act in any case do not apply, the assessee having not claimed any deduction for any expenses on account of payment to Vikram Electric Equipment P. Ltd. either in its profit and loss account or in the computation of taxable income filed. It was only that the Assessing Officer recorded a loss of Rs. 19,700/-. This obviously, did not include any addition of either Rs. 4.02 crores or Rs. 1.24 crores. 9.6. In view of the above discussions, the grievance of the assessee is found to be correct and is accepted as such.
Consistent with the view taken therein, as it is undisputed that the facts are identical, we allow this appeal of the assessee. The grounds raised by the assessee stands allowed.”
In the result, the appeal of the assessee is allowed.